Tensions rise in the Strait of Hormuz as a Qatari gas carrier is attacked, driving oil prices up. But why isn't gold following suit?
Tankers came under attack in the Strait of Hormuz again today, with a Qatari gas carrier hit and burning off the coast of Oman. Iran is the presumed hand, and its state television implied as much. Oil jumped more than 2%. Talks between Washington and Tehran are frozen while the funeral for the slain supreme leader fills the streets, and Iran's navy is forcing ships onto its own approved routes.
This resulted in the most bullish daily price action in several weeks. The daily rally is not that impressive on its own – it’s just a 2.5% move – but it’s a short-term game-changer when you consider the following:
- Crude oil rallied in a visible way for the first time in many days
- It happened after a breakout above the declining resistance line
- Crude oil just bounced off the lower border of the previous price gap
This suggests that the current rally might be more than just a one-day development.
Before moving to gold, please note how perfectly that triangle-vertex-based reversal worked in June – the top that it marked was the last of crude oil’s tops close to $100.
This is the kind of morning that is supposed to send gold sharply higher. Gold did not move. It sits a fraction lower on the day, and silver is down more than 1%. That single fact tells you more about this market than any chart in this report.
Think about what should have happened. A shooting war flares back up on the world's most important oil chokepoint. Crude spikes. Headlines fill with fire and threats. That is the textbook setup for a sharp rally in gold, the classic safe-haven bid.
Instead, the metal sat there, as it had each time. The war broke out in February, and gold gave its spike back within a day. A peace deal was signed last month, and gold did the same. The war flared again last week, and gold fell anyway. It returns today, and gold will not even lift. A market that ignores its own best reason to rally is telling you where the real force lies, and the real force is not fear.
The real force is the dollar and the rate that stands behind it. Here is where today's oil move turns on gold a second time. Higher oil means higher inflation, and higher inflation is what has kept the Federal Reserve leaning toward hikes all year. Last week handed gold a brief reprieve, because a soft jobs report and cheaper oil eased that inflation picture and pulled the odds of a September hike down to about half from two-thirds. If oil climbs again on the back of the Strait, that reprieve starts to unwind. The inflation impulse returns, the hawkish case firms, and the dollar with it. So the same oil spike that denied gold its fear bid this morning also works to pull away the support that lifted it last week.
[Analysis of 4%+ decline in the GDXJ, the move in FCX, S&P 500, and detailed targets are available in full Gold Trading Alert.]
Silver makes the point in its own way. On a morning of war headlines and rising oil, the metal that is supposed to run hardest in an inflation scare is leading the sector lower. That is not the look of a market gathering itself for a move higher. It is the look of a sector still pressed by a firm dollar.
Technically, the white metal just moved back below its near-horizontal support line, and the declining resistance line held.
The dollar is doing nothing dramatic today, and it does not need to. It broke above 100 and its previous highs, it pulled back to verify that breakout last week, and it is holding. As long as it holds there, the weight on gold, silver, and the miners stays in place, and every failed rally in the metals confirms it again. The chart has not changed. The bullish story it tells has not changed.
In other words, everything that I’ve been writing about and preparing you for in the previous days, remains up-to-date.
Thank you for reading today’s free analysis. More details follow for Gold Trading Alert / Diamond Package subscribers.
Sincerely,
Przemyslaw K. Radomski, CFA